RBA Minutes April 2015 (edited) - extended version

Fill the gaps in this heavily edited version of the RBA Minutes of its April 2015 Board Meeting. A good exercise to familiarise yourself with the forces impacting on the economy in 2015

Fill in all the gaps, then press "Check" to check your answers. Your goal should be to achieve 100% for each question.
International Economic Conditions

Members noted that growth of Australia's major partners had continued at around its average pace in early 2015. Growth in looked to have eased a little further and this was likely to have contributed to further in iron ore and coal prices. Globally, the fall in oil prices in the second half of 2014 had led to lower and was expected to provide additional support to in Australia's trading partners. Monetary policies remained very .

In China, the authorities had announced a target for GDP in 2015 of 7 per cent, ½ percentage point below the target for 2014. Recent indicators suggested that e conditions had softened. Growth of fixed asset investment had been slowing, particularly in real estate and mg, and prices of residential property and sales volumes had declined further. Members noted ... . that the central authorities had indicated a willingness to adjust policies to support et growth, while remaining committed to putting financing on a more se footing. The weakness in the property market in China had flowed through to slower growth in the demand for sl, which had, in turn, contributed to the recent falls in prices, even though Chinese of Australian iron ore had continued to increase.

The modest recovery of the Japanese economy was continuing. Labour conditions remained tight and the recent annual spring wage negotiations had resulted in several large companies increasing base by more than they did a year earlier. In the rest of the Asia-Pacific region, growth had continued at around its average pace of the past decade, although there had been variation in the composition of growth across the region.

Members observed that the US economy had continued to grow, but that the pace of growth may have moderated in the early months of this year partly in response to the temporary effects of adverse conditions and industrial at some ports. market conditions had strengthened further over the past six months or so; employment had increased at around its fastest pace in several years and the rate had declined further. Members noted that overall wage growth in the United States remained subdued... . The unemployment had declined a little further and there had been a noticeable lift in activity in some euro area periphery economies. Lower prices had reduced consumer inflation significantly, but measures of consumer price inflation had not changed much in recent months and remained well below the target of the European Central Bank (ECB)... .Members observed that bulk commodity had declined further over the past month. Although much of the decline over 2014 was driven by expansion in global , the slowing in growth of Chinese had contributed more recently. A small (but increasing) share of Australian iron ore p was estimated to be unprofitable at prevailing prices, while the decline in oil prices since the middle of 2014 was expected to lower the prices of Australian liquefied natural gas over the next few months [...because the demand for this s commodity will fall as a result of its higher price]

Domestic Economic Conditions

The December quarter national accounts, which were released the day after the March meeting, confirmed that the Australian economy had grown at a below-average pace over 2014. Members noted that growth in dwelling investment, and resource e had picked up, but that business i had continued to fall and demand had made little contribution to over the year. Recent indicators suggested that the below-trend pace of growth had continued into the March quarter.

Overall conditions in the housing market had remained strong, supported by very low rates and relatively strong p growth. Housing prices had continued to rise strongly in Sydney and, to a lesser extent, Melbourne, but growth in had eased recently in some other parts of the country... .Housing credit overall had been growing at about 7 per cent in six-month-ended annualised terms, while credit to investors had grown at a pace a little above 10 per cent on the same basis. Recent data on loan approvals suggested that growth in housing c was likely to continue at this pace, but not accelerate, in the months immediately ahead. Meanwhile, new dwelling approvals and l approvals for new construction were at high levels, pointing to strong growth in dwelling investment over coming quarters.

Household consumption had increased in the December quarter, supported by low interest rates and rising household w. Even so, growth in household over the second half of 2014 had been slightly below average, reflecting subdued growth in household , while the ratio had continued its gradual decline of the past two years. More timely data had indicated that growth in the value of retail trade in January and February was about average and that consumer c had been close to average levels.

Mining investment was estimated to have by 13 per cent over 2014 and an even larger decline was expected over 2015. Moreover, members observed that the recent declines in prices could lead to some scaling back of investment plans in the oil and gas sector. Non- investment had been subdued for some time... .however there has been a pick-up in growth of credit to of late [with the] strongest improvement in investment intentions being recorded for industries experiencing the strongest ot growth, such as rental, hiring & real estate and retail trade. More recently, survey measures of business confidence and capacity u remained a little below average, while measures of business conditions were around average levels...

Resource es had grown strongly in the December quarter and there were early indications of strength in resource exports in the first few months of 2015. However, lower commodity prices were expected to lead to some reduction in the growth of p, and therefore exports, in 2015, particularly for c. The data for recent quarters were consistent with the lower rate having provided support to exports, particularly for s.

Recent e growth had been stronger than a year earlier, but it was still below the growth of the -age population. Consequently, the unemployment had continued its gradual upward of recent years, notwithstanding a modest decline in February to 6.3 per cent. Other indicators, such as hours worked and the rate, had provided further evidence of capacity in the labour . The various forward-looking indicators were stronger than a year earlier, but remained at levels consistent with only modest employment in the months ahead.

Members noted that the national accounts measures of growth had remained subdued. Combined with some pick-up in labour growth over recent years, this had meant that unit costs had not changed much for about three years. Various measures of expectations had remained slightly below their longer-run averages.

Financial Markets

... .Members concluded their discussion of financial markets with the observations that lending for business and housing in Australia had continued to edge down over the previous month, and that financial assigned a high probability to a reduction in the rate at the current meeting, and an even higher probability to a reduction occurring by the May meeting.

Considerations for Monetary Policy

Members' overall assessment was that the outlook for global growth had not changed significantly over the past month and that it would be supported by stimulatory policies and the fall in the price of since mid 2014. They observed that the apparent slowing of growth in , in particular the further deterioration in conditions in the Chinese py market, had placed some additional downward pressure on the for steel and on the prices of Australia's key cy es. Conditions in global financial markets had remained very ae. Changes to the stance of monetary policy by any of the major central and further significant developments in Europe had the potential to affect market conditions in Australia, including the rate, over the coming year.

Data available at the time of the meeting suggested that the Australian economy had continued to grow somewhat below in the December and into the first quarter of 2015. There had been evidence to suggest that the growth in consumption and dwelling i had picked up, supported by the very low levels of rates. Exports were also growing. However, a significant pick-up in non- business investment was yet to occur and several indicators suggested it would remain subdued for longer than had earlier been anticipated. At the same time, the recent declines in bulk commodity could, at the margin, lead to a larger-than-expected fall in mining and some decline in the production of ore and coal. Data for the labour suggested that the economy was likely to be operating with a degree of spare for some time and that labour market conditions were likely to remain subdued. As a result, pressures were expected to remain contained and was forecast to remain consistent with the over the next year or so.

Members remained alert to the possibility that the low levels of interest rates could foster imbalances in the h market. The most recent data suggested that activity in the housing market had remained strong, but there had been little change to housing market conditions overall or in the growth of housing c in early 2015. Although prices continued to rise rapidly in and, to a lesser extent, Melbourne, trends elsewhere were more varied. Members noted that the Bank was working with other regulators to assess and contain risks arising from the housing market.

Overall, members considered that the current setting of policy was and providing support to the economy. They also acknowledged that a lower rate would help achieve more bd growth in the economy. Further of the Australian dollar was likely given the recent declines in key prices.

In considering whether or not to reduce the rate further at this meeting, members discussed the various channels through which monetary policy was affecting the economy at present, including the price and rate channels. In assessing the operation of the flow channel in particular, they noted that the responsiveness of borrowers and to changes in interest rates and asset prices was unusually uncertain in a world of very low and high household le. Members also saw advantages in receiving more data, including on inflation, to assess whether or not the economy was on the previously forecast path and allowing more time for the economy to respond to the reduction in the cash rate earlier in the year.
Taking all these factors into account, the Board judged that it was appropriate to hold rates steady for the time being, while accepting that further of policy may be appropriate over the period ahead to foster s growth in demand and consistent with the target.

The Decision

The Board decided to leave the rate unchanged at per cent.